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How The Starbucks Free College Plan Could Save It Millions Of Dollars Per Year

How The Starbucks Free College Plan Could Save It Millions Of Dollars Per Year
StrategyStrategy3 min read

Starbucks cup barista

AP Photo/Ted S. Warren

Starbucks employees will have access to 40 online undergraduate programs from Arizona State.

This fall, Starbucks is partnering with Arizona State University to offer employees tuition reimbursement for online classes, including full payment for those entering as juniors and seniors.

It will require a significant investment to help thousands of eligible employees achieve bachelor's degrees, but the payoff could end up being greater.

If the Starbucks College Achievement Plan is a success, then Starbucks could save millions of dollars on training and turnover and will attract a higher level of employee, says Tom Gimbel, president and CEO of the staffing and recruiting firm LaSalle Network.

"I think it's great," Gimbel tells Business Insider. "This is a smart investment."

Starbucks CEO Howard Schultz did not reveal how much the program is expected to cost, but getting a degree from ASU's online program costs between $3,000 and $10,000, and ASU president Michael Crow told The Wall Street Journal that he expects 15,000 to 20,000 Starbucks employees to enroll in the online program annually.

For employees who work at least 20 hours each week, the company will pay full tuition for those finishing their final two years of a bachelor's degree and partial tuition for everyone else. Those who need additional assistance will be eligible for federal Pell grants. Starbucks will not require employees to stay with the company after they get their degree.

Gimbel points to Schultz' 2011 book "Onward," which details Schultz's concern with high turnover of employees and the high cost of training as motivation for the decision.

While Starbucks has a relatively good retention rate for the retail industry, the Washington Post estimates that it costs around $3,000 to replace an employee and that because "food businesses can have more than a 100% turnover rate if they replace their entire staff more than once per year, the cost of school could be worth it."

For many people, a job at Starbucks is part of a career transition phase or a way to support an education, and the company knows this. It says that 70% of its employees are either college students or want to eventually get a bachelor's.

"The company has always been about getting people to feel like working at Starbucks is better than working at a place like McDonald's," Gimbel says, and he thinks this program will not only incentivize more people to join the company, but it will attract a "more motivated employee."

"I believe it will lower attrition, it'll increase performance, it'll attract and retain better people," Schultz tells the New York Times.

Getting a degree through Starbucks may also motivate some employees to stick with the company and pursue a managerial position.

It's an added incentive now that Starbucks' healthcare benefits are less attractive in the Obamacare age of more readily available health insurance.

Gimbel thinks that there will of course be an adjustment period, mostly dealing with employees who are upset about details over eligibility. Workers at licensed locations, like the ones in some grocery stores, won't be eligible, and employees will still have to go through the full ASU application process.

Ultimately, Gimbel expects it to be a success, even if it takes a few years to start working ideally.

And on top of potential savings on training and the growth of a more motivated workforce, there's plenty of great publicity that comes out of it.

Schultz, who grew up in the projects in Brooklyn and went to Northern Michigan University on scholarship, says the initiative is personal for him. "We want to create access to the American dream," he says.